Are layoffs necessary in cannabis?

“It is necessary sometimes to take one step backward to take two steps forward.” Vladimir Lenin

This question has triggered lots of media and social commentary as well as deliberations within many #cannabis firms.  The consensus among keyboard warriors (and some managers) is that #layoffs are bad for workers, the industry and accordingly are a poor strategic move.  Cue my head shake.

Important decisions in cannabis like other businesses aren’t made with your heart but with your head.  Layoffs must be on the table and implemented sensibly and quickly if need be.  They are also not unique to the #cannabisindustry, as witnessed by the recent tech and financial services job culls.

My view is underpinned by tough industry realities.  Every #cannabisbusinessfaces a very difficult operating and funding environment featuring margin compression, cash flow crunches, and slowing growth in older markets.  Most companies are not cash flow positive let alone profitable. This situation will not recede in the next 9-12 months, so something needs to be done.

Firm’s also struggle coping with earlier blunders around overbuilding capacity, launching too many undifferentiated products, carrying excessive inventory, and recklessly scaling up headcount. The implications of these strategic errors need to be finally dealt with and not kicked down the road.  Unfortunately, the first three mistakes noted take time to unwind.

When a rapid financial reversal is needed, management doesn’t have many good options.  When executed well, layoffs have the quickest and most sustainable impact on costs (wages are a top 3 cost driver), with minimal revenue risk.  Layoffs also send a positive signal to capital markets, investors and residual employees that management is taking the necessary steps to ensure viability.

I have been involved in many layoffs, both as an implementer and victim.  They are not a perfect answer to complex problems, but they are better than the alternatives in the short turn.

Growing revenue in a low margin business can trigger a cash flow crisis. Raising prices can lead to market share declines.  And, revenue generation typically requires new input and sales & marketing spend - money you may not have.

Squeezing lower prices from your suppliers may yield savings but good luck getting a break from a utility or financial institution.  Forget gov’t, deferred taxes must be paid (and Boards are liable).  Becoming more innovative and productive sounds good but capturing value quickly is not realistic nor cheap.

Strategic decision making is about seeing the world as it is and choosing the ‘least bad’ option.

Though painful layoffs are the best way to prune short term costs, protect the jobs of remaining workers, keep suppliers onboard and support embattled shareholders. 

#layoffs #costs #recession #costreduction #strategy